Banks are lending less to small business

  • Anil Kanda
  • 30 Sep, 2010

The Bank of England figures show that small business lending remains in crisis and firms are still paying back billions more than they are advanced. It is the fifth month in succession that business lending to small firms has contracted. Britain’s 4.7 million small and medium-sized firms are affected.

Business Secretary Vince Cable has read the riot act to the banks, while speaking at a fringe meeting at the Liberal Democrat Conference in Liverpool, to start lending or face more government taxes. He said ‘One of the sticks is in relation to tax measures. It remains an option, particularly if the banks decide to spray out lots of money on bonuses and dividends at a time when small businesses are being starved, then the case for taking action is a compelling one.’

Deputy Prime Minister Nick Clegg added that the Coalition is ‘working flat out to get the banks lending again to small businesses’, referred to as ‘the lifeblood of our economy’. He said that a levy to be introduced in January 2011 will be worth around £2 billion pa.

Mortgage lending is at a 10 year low while savings are raided at the rate of £60 billion, figures for where this cash is being spent are not available.

The British Bankers’ Association insists its members are doing their best to help small firms at this difficult time. A spokesman said: ‘The UK’s banks have established a task force to report to the Government on exactly this issue – addressing how banks can further help small businesses through the recovery. ‘We absolutely agree with the Government that small businesses are vital to securing the economic recovery and have committed to offering every assistance to viable businesses.’ Bank of England governor Mervyn King said he was deeply saddened by the impact of the banks’ behaviour on small firms.

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